Update on Fossil Fuel Subsidies in Indonesia on Fossil Fuel Subsidies in Indonesia . 2 ... Ministry of Energy & Mineral Resources Republic of Indonesia Sales of Kerosene vs Sales of

1 Ministry of Energy & Mineral Resources Republic of Indonesia

IGN Wiratmaja

Director General of Oil and Gas

Ministry of Energy and Mineral Resources

IEA International Conference on Fossil Fuel Subsidy Reform

Paris, 13 October 2016

Update on Fossil Fuel Subsidies in Indonesia


D R E A M

+ 5,000 km

+ 4,600 km


3 Ministry of Energy & Mineral Resources of the Republic of Indonesia

INDONESIA GDP 2015 : USD 872.6 billion (16th in the world)

Economic Growth 2015: 4.79%

Population: 250 million

4 Ministry of Energy & Mineral Resources Republic of Indonesia Ministry of Energy & Mineral Resources of the Republic of Indonesia

LPG GAS CRUDE OIL

Gas export & consumption as of October 2015

2015

15

Production 830,000 BOPD Production 2.27 million MTonnes Production 8,113 MMSCFD

Import 770,000 BOPD Import 4.3 million MTonnes Export 3,048 MMSCFD

Consumption 1.6 million BOPD Consumption 6.57 million MTonnes Consumption 3,703 MMSCFD

Annual Consumption

Growth

3%

Annual Consumption

Growth

13%

Annual Consumption

Growth

2%

44

Indonesia is both a producer & consumer.


History of Gasoline Price in Indonesia

2x

Rise

2x Price Increase

7x Price Adjustment

3x Price Increase

18x Price Increase

No

Price

Rise

Gasoline Price

Pre

miu

m P

rice

, R

p /

liter


Gambar 6

1. Since 2005, MOPS was used as a basis pricing formula, due to multi retail players assigned to manage PSO

2. Starting in 2015, targeted subsidy with fixed subsidy level

PSO

MOPS + α

PSO

Cost + Fee

4 years 1 Mo + 7 days

LAW 22 2001 PRESIDENT REG 71 2005

MEMR REG 2043 K/20/MEM/2005

D E R E G U L A T I O N & R E S T R U C T U R I Z A T I O N

PSO

Cost + Fee

PREPARATION & TRANSITION

TRANSITION

PERTAMINA PERTAMINA

MOPS USED AS ECONOMIC PRICE DETERMINATION

23 November 2001 1 January 2006 23 November 2005

6

PSO

MOPS + α

1 January 2015

PRESIDENT REG 191 2015

MEMR 39/MEM/2015

FIXED RETAIL PRICE WITH FLOATING SUBSIDY

FLOATING RETAIL PRICE

FIXED SUBSIDY TRANSITION TO TARGETED SUBSIDY

PSO Fuels Regulation Roadmap

DEREGULATION

PERTAMINA (Market Leader) + (OTHER OIL TRADERS)


Volume of Subsidized Fuel

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Vo

lum

e (

Mill

KL)

Premium (Gasoline 88) HSD 48 Kerosene


0.00

2.00

4.00

6.00

8.00

10.00

12.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sub

sid

y (B

illio

n U

SD)

Premium (Gasoline 88) HSD 48 Kerosene LPG

No Gasoline

Subsidy

Diesel Subsidy

Dropped

Significantly

Fuel Subsidy Spending

Total Subsidy for the last 10 years: USD 110.95 Billion

• Consumption of LPG 3 kg is continously growing :

Open distribution system no limited users, everyone can buy a subsidized commodity

Illegal practice : taking out LPG from 3 kg canisters to be refilled to 12 or 50 kg canisters price disparity

Migration of users : people who previously used LPG 12 kg prefer to buy LPG 3 kg because of the cheaper price


Shifting Fossil Fuel Subsidies

Encourage the construction of public infrastructure, such as Bridge, Irigation, Road, etc

- The funds are used for infrastructure development and social security program

- Not only for developing energy access, also can be used for multi sectoral

infrastructure

- Government has larger fiscal space for State Budget


Shifting fuel subsidy to infrastructure & social security program


Shifting fuel subsidy to infrastructure & social security program


1/1/15 01/07/16 21/06/13

MEMR 18/2013 •Premium: Rp.6.500/ltr •Kerosene: Rp.2.500/ltr •Diesel: Rp.5.500/ltr

Realization: •ICP: 105,42 US$/bbl •Exchange Rate: Rp.11.500/US$1 •ICP Rp.7.623/ ltr

Subsidy Scheme Reform (Transformation of Floating to Fixed Subsidy)

MEMR 34/2014 •Premium: Rp.8.500/ltr •Kerosene: Rp.2.500/ltr •Diesel: Rp.7.500/ltr

Realization Nov’14 •ICP: 75,39 US$/bbl •Exchange Rate : Rp.12.097/US$1 •ICP Rp.6.736/ ltr

18/11/14

1/10/15

Retail Fixed Price

Price calculation : monthly average

Since January 1st, 2015:

-gasoline 88 is no longer subsidized

-Fixed subsidy of HSD 48

-Fixed retail price of kerosene (fluctuative subsidy)

Present

Price calculation :

3-month-average

Fixed Subsidy of HSD 48 : Rp 1.000/liter

Fixed Subsidy of HSD 48 : Rp 500/liter

Fixed subsidy will result in a fluctuation of retail price


0.3

0.4

0.5

0.6

0.7

0.8

0.92

5-N

ov-

14

25

-De

c-1

4

25

-Jan

-15

25

-Fe

b-1

5

25

-Mar

-15

25

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5

25

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25

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6

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25

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25

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v-1

6

25

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c-1

6

USD

/lit

er

Retail Price (USD/liter) Calculated Price (USD/liter) Daily Price (USD/liter)

Strategy How to Handle Gasoline RON 88 Price Fluctuation

Retail Price 18 Nov – 31 Des USD 0.689

Retail Price 1 Mar – 27 Mar USD 0.552

Retail Price 1 – 18 Jan USD 0.616

Retail Price 19 Jan – 28 Feb USD 0.535

Retail Price 28 Mar – 4 Jan USD 0.592

Retail Price 5 Jan – 31 Mar USD 0.564

Retail Price 1 April – 31 Dec USD 0.523


0.3

0.4

0.5

0.6

0.7

0.8

0.925

-No

v-1

4

25-D

ec-1

4

25-J

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5

25-F

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5

25-M

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15

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25-D

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USD

/lit

er

Retail Price (USD/liter) Calculated Price (USD/liter) Daily Price (USD/liter)

Strategy How to Handle HSD 48 Price Fluctuation

Retail Price 1 – 18 Jan USD 0.588*

Retail Price 28 Mar – 9 Okt USD 0.560*

Retail Price 19 Jan – 27 Mar USD 0.519*

Retail Price 10 Okt – 4 Jan USD 0.543*

Retail Price 5 Jan – 31 Mar USD 0.458*

Retail Price 1 April – 31 Dec USD 0.418**

* Subsidy Rp 1.000/liter

** Subsidy Rp 500/liter

Retail Price 18 Nov – 31 Des USD 0.608*


Fuel Price vs Macroeconomy Indicators


Note:

• Subsidies are assumed to be dependent on shifting policies and State Budget

Shifting to productive sectors

Trill

ion

Ru

pia

h

Infrastruktur Nasional

Shifting Subsidy Budget

Subsidy Scheme Reform

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Sub

sid

y (B

illio

n U

SD)

Premium (Gasoline 88) HSD 48 Kerosene

“For the last 10 years, Government has spent USD 100 Billion for fuel subsidy (LPG not included), in the next 5 years it is expected that fuel subsidy will decrease by USD 50 Billion”

Energy

Subsidy National Infrastructure


Impact of Fuel Price Increase (Premium and Diesel) of Rp 2,000/liter Respectively Impact of Fuel Price Increase (Premium and Diesel) of Rp 2,000/liter Respectively

Fuel Price vs Inflation

• Inflation of 7,8%-8,5% (yoy) is a result of increasing fuel price in 2014 . • Transportation cost also increased by 14% (considered only fuel price) and affected the inflation rate by 2,58%. • But if transportation cost also takes other costs into account, the transportation cost would increased by 27,26% and affect the

inflation rate by 3,26% (yoy).

Impact of Subsidized Fuel Price Increase Value (%) Inflation (%) Impact (%)

Direct Impact 1.27

Gasoline 3.95 30.77 1.21

Diesel 0.16 36.36 0.06

Indirect Impact to Transportation Cost 1.42

Ferry 0.01 28.58 0

Intercity Transport 0.66 27.26 0.18

Public Transport 2.57 47.08 1.21

Sea Transport 0.05 5.92 0

Train 0.12 11.16 0.01

Taxi 0.09 10.18 0.01

Indirect Impact to Other Commodity 0.57

Core 63.1 0.57 0.36

Volatile Food 17.46 1.21 0.21

Total Impact to Inflation 3.26

Unregulated Transportation Tariff Regulated Transportation Tariff

Impact of Subsidized Fuel Price Increase Value (%) Inflation (%) Impact (%)

Direct Impact 1.27

Gasoline 3.95 30.77 1.21

Diesel 0.16 36.36 0.06

Indirect Impact to Transportation Cost 0.73

Ferry 0.01 14.68 0

Intercity Transport 0.66 14 0.09

Public Transport 2.57 24.18 0.62

Sea Transport 0.05 3.04 0

Train 0.12 5.73 0.01

Taxi 0.09 10.18 0.01

Indirect Impact to Other Commodity 0.57

Core 63.1 0.57 0.36

Volatile Food 17.46 1.21 0.21

Total Impact to Inflation 2.58

• Impact to Transportation Cost is conservative, considering the rise of staple costs in

2014 (not only fuel oil, but also other components such as capital costs, cost of crew,

depreciation, etc.)

• Indirect costs are based on estimation using latest data (elasticity of 10% subsidized

fuel increase will raise the pressure of core inflation of 0.17% and Volatile food of

0.36%

• Impact to Transportation Cost is optimistic, and only considers the rise of fuel oil of Rp

3,000/liter (reflecting upon the success of regulating transportation tariffs in 2013)

• Indirect costs are based on estimation using latest data (elasticity of 10% subsidized fuel

increase will raise the pressure of core inflation of 0.17% and Volatile food of 0.36%

Fuel Price vs. Inflation


Success Story Of Kerosene To LPG


Reducing Kerosene will deliver advantages:

Added value Kerosene can be upgrading to avtur

Reducing misuse of subsidized kerosene

Remanaging the distribution system of subsidized fuel to minimize illegal practice and

shortage

Background of Kerosene to LPG Conversion

In 2006, fuel subsidy was amounted to IDR 64.212 Trillion. Out of that amount, IDR 31.58 Trillion was

dedicated for Kerosene that put a huge burden to the State budget

National Energy Policy to diversify sources of energy supply and reduce dependency on fossil fuels

in particular Kerosene

LPG has a higher energy density and lower emission compared to Kerosene


Total 2015

0,78

57,19

1,12 1,30

2014 2009 2013 2012

0,00

2011

0,00

2010

10,37

24,16

2008

15,76

2007

3,70

Million Packages)

Distribution = 57,19 million initial packages

Papua Papua Barat

Area 2007-2008

Area 2009

Area 2010

Area 2012 – 2015 Conversion Planning

Kerosene to LPG Conversion Area


Sales of Kerosene vs Sales of LPG 3 kg 1 liter kerosene ~ 0,4 kg LPG

Subsidy Saving (un-audited) Reaching USD 15.16 Billion

0 21 547 917 738 402 2349 2712

2009

4683

1767

2008

7855

2007

9850

2006

9959

Actual sales till

Sept 2016

4431

2015

5567

2014

4998

2013

1109

4403

2012

1183

3906

2011

1696

3258

2010

Kerosene (Thousand KL)

LPG (Thousand MT)

0.02 0.76 0.95 1.19

1.97 2.10 2.29 3.37 3.55

16.21

0

0.60 0.56 0.83 1.97 2.10 2.26

3.35 3.52

15.16

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 Total

Gross Saving

Conversion Cost

Nett Saving

Diminishing misuse of Kerosene for Cooking

(due to illegal practice)

Savings Due to Conversion Program


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Jan

'09

Ma

r'0

9

Me

i'09

Jul'0

9

Se

p'0

9

No

p'0

9

Jan

'10

Ma

r'1

0

Me

i'10

Jul'1

0

Se

p'1

0

No

p'1

0

Jan

'11

Ma

r'1

1

Me

i'11

Jul'1

1

Se

p'1

1

No

p'1

1

Jan

'12

Ma

r'1

2

Me

i'12

Jul'1

2

Se

p'1

2

No

p'1

2

Jan

'13

Ma

r'1

3

Me

i'13

Jul'1

3

Se

p'1

3

No

p'1

3

Jan

'14

Ma

r'1

4

Me

i'14

Jul'1

4

Se

p'1

4

No

p'1

4

Jan

'15

Ma

r'1

5

Me

i'15

Jul'1

5

Se

p'1

5

No

p'1

5

Jan

'16

Ma

r'1

6

Me

i'16

Jul'1

6

Se

p'1

6

Pri

ce (

Rp

/ K

g)

Implementation of Closed Distribution System

Efficient

Accountabel

Transparant

Targeted Group

Quota Based

Appropriate Price

Re-arranged Distribution System, Information Technology, Law Enforcement

Open distribution system, no limited access

LPG 3 kg consumption and its subsidy is

growing rapidly

Since its launching in 2007 the kerosene to LPG

program has distributed

±57 million initial packages

Background of Closed LPG 3 Kg Distribution System

Under Control

Sustainable

Distribution Cost & Margin Landed Price Retail Price Rp/Kg Retail Price (without Margin & VAT)

Rp/Kg

Indonesia LPG Price from 2009 to 2016


Government

Subsidy is given only to the targeted group

People

People People

Security of supply

People buy LPG 3 kg according to the

price stipulated by the local government

Wealth improvement

Advantages of Closed Distribution System of LPG 3 Kg


• Continuous Reform to targeted subsidy as single social security

policy

Next Step

• Establishment of “Energy Resiliency Fund” to develop NRE, energy

infrastructure development, R&D and HRD

Create Dynamic Adjustment Retail Oil Pricing Scheme

Fundraising strategy

Fund Management


Indonesia is both a

producer and consumer

Closing Remarks

Total Fuel Subsidy Spending in last 10 years:

USD 110.95 Billion

Harmonizing fuel pricing policy

To maintain economic stability


THANK YOU migas.esdm.go.id

Documents

Update on Fossil Fuel Subsidies in Indonesia on Fossil Fuel Subsidies in Indonesia . 2 ... Ministry of Energy & Mineral Resources Republic of Indonesia Sales of Kerosene vs Sales of